Clients often place securities transaction orders with a member of a securities exchange to take advantage of benefits given to such members. Such benefits include a book matching privilege. To obtain a book matching privilege, one must be a member of the securities exchange, e.g., the New York Stock Exchange (NYSE), have a seat on the exchange, be present on the exchange floor, and use floor execution (also referred to as crowd execution). A specialist also may receive such a matching privilege. To place the order via crowd execution, members use assigned hand-held devices registered with the securities exchange.
The matching privilege allows the qualifying member (or specialist) who places a buy order after a prior buy order has already been placed on the securities trading book, to match to a portion of a subsequently placed sell order (conditional upon that at least one order placed by another party prior to the order of the qualifying member, and concerning the same security for which the qualifying member placed the buy order, had been executed subsequent to placement of the qualifying member's buy order and as long as at least 100 (or any other decided upon number, e.g., 1) shares of each of the potential matching sell orders is matched to the party who set the bid (the party who set the initial outstanding bid for the subject security at the subject limit price)). (It is noted that the party who set the bid may also be a qualifying member.)
For example, FIG. 1 shows a log of buy orders set by four parties, including A, the public, and B-D, each of whom is a qualifying member, where orders A-D were received sequentially beginning with order A. The public A may be formed by one or more sub-orders, including the initial order which set the bid. Order A is for 100,000 (100M) shares, order B is for 10,000 (10M) shares, order C is for 10,000 (10M) shares, and order D is for 1,000 (1M) shares. The orders may be queued on a member-by-member basis, such that multiple open orders placed by the same member at different times are aggregated, even where different ones of the multiple orders are placed for different clients of the respective member. (The limit prices are not shown. Further, it is noted that the features described with respect to FIG. 1 may be applied as well to market orders.)
FIG. 1 further shows a series of sequential incoming sell orders 1-5 which meet the price limits, if any, of the buy orders A-D. Sell order 1 is for 200 shares. Assuming this is not the first sell order received after the order D, FIG. 1 shows allocation of 100 shares to order A, 100 shares to order B, and 0 shares to each of orders C and D. (This may be so since the smallest number of shares traded in a single transaction on the securities exchange is 100 shares. However, any other decided upon number, e.g., 1, of shares maybe implemented in the alternative.)
Sell order 2 is for 200 shares, of which 100 shares are allocated to order A (since for each incoming sell order, the first 100 shares are allocated to the party who set the bid, assuming the party's buy order has not yet been fully executed), 100 shares are allocated to order C, and 0 shares are allocated to orders B and D.
Sell order 3 is for 200 shares, of which 100 shares are allocated to order A, 100 shares are allocated to order D, and 0 shares are allocated to orders B and C.
Sell order 4 is for 300 shares, of which 100 shares are allocated to order A (because it belongs to the party who set the bid), 100 shares are allocated to each of orders B and C, and 0 shares are allocated to order D.
Sell order 5 is for 300 shares, of which 100 shares are allocated to each of orders A, B, and D, and 0 shares are allocated to order C.
Thus, as illustrated by FIG. 1, a member or specialist is provided a distinct benefit for skipping over other parties for matching portions of counter-orders on the book via a round-robin allocation. As noted above, the round-robin allocation may be on a member-by-member basis, rather than on an order-by-order basis. The client can take advantage of this benefit by placing an order through the qualifying member.
To place the order, the client transmits an order, e.g., via phone, e-mail, in person, etc., to the member firm, at which the order is manually entered into the member's order management system (OMS). The OMS keeps track of all orders of the member, including information regarding which orders remain open and which have been filled or partially filled. The OMS may also automatically forward the order to the hand-held device of a floor broker of the member. The floor broker then selects a third party e-quote access point, which may be implemented on a server, and forwards the order or a part of the order to the selected third party e-quote access point, which submits the order or parts thereof to the securities exchange point of sale for placement on the book. The securities exchange rules require order placement to follow the described party chain from client to OMS to hand-held to third party e-quote access point and finally to the point of sale. Upon execution of an order, notification of the order's execution is provided back to the OMS via the reverse chain, from the point of sale to the third party e-quote access point to the hand-held and then to the OMS, which may update its records to indicate the order or partial order's execution.